Harrah's CEO Gary Loveman Stands to Get $94 Million in Buyout Deal

LAS VEGAS – Gary Loveman, the chief executive of casino giant Harrah's Entertainment Inc. (HET), will receive about $94 million in stock options and other rights if the world's largest casino buyout deal is consummated, according to documents filed with the Securities and Exchange Commission.

Loveman would collect on stock options worth $80.3 million, stock appreciation rights worth $8.8 million, and restricted shares worth $4.9 million, according to a preliminary proxy statement filed Thursday with the SEC.

Loveman would receive an additional $18.9 million in severance pay if he leaves the company under certain conditions, including if he voluntarily quits a year after the buyout is completed.

The board of Harrah's, the world's largest casino operator by revenue, on Dec. 19 recommended that shareholders approve a $90-per-share, $17.1 billion buyout of the company by private equity firms Texas Pacific Group and Apollo Management Group.

It would be the largest going-private deal ever for a publicly held casino company and, excluding debt, the seventh biggest leveraged buyout deal of any kind of company.

Although Loveman spoke with prospective buyers, he was not directly involved in decision-making by a special committee of the board that excluded management in evaluating the deal since Sept. 20.

The SEC document also describes how close Wyomissing, Pa.-based Penn National Gaming Inc. came to merging with Harrah's to become a colossal casino player that would have owned or operated more than 70 casinos, horse tracks and off-track wagering facilities mainly in the U.S., Britain and Canada.

And it offers a detailed look at how the casino giant's board came to grips with competing multibillion-dollar bids in a short time span.

Apollo and Texas Pacific approached Harrah's separately in August about taking the company private before teaming up in September. The pair offered $81 per share, which the company announced Oct. 2.

Shortly after, Penn, referred to in the document as "Company B," called Harrah's financial adviser UBS to express interest in submitting a bid. The two companies have never publicly discussed Penn's interest, but it was confirmed by sources who did not want to be identified because of the sensitivity of the talks.

Although it backed out of the process Oct. 23, about two weeks after Apollo and Texas Pacific raised their offer to $83.50 in cash, Penn was back in early November, asking for more information.

In mid-November, Penn chief executive Peter Carlino talked on the phone with Loveman several times, met with Loveman in Atlantic City, N.J., and had dinner with Harrah's directors Frank Biondi Jr. and Stephen Bollenbach in Los Angeles, according the document.

Penn submitted its own bid on Nov. 27 for $71 in cash plus a stock swap it said took the offer to $87 a share. The bid prompted Harrah's to set a deadline of Dec. 12 for final offers from both sides.

Apollo and Texas Pacific raised their offer to $88.50 in cash on Dec. 12, while Penn's proposal was worth $86.92, with $71 of that in cash and the rest in stock.

In meetings at UBS' office in New York, the special board committee discussed both offers over the next few days but expressed concern that a merger with Penn could raise antitrust concerns with authorities. Penn operates 12 casinos, seven race tracks and seven off-track wagering facilities in locations from Ontario, Canada, to Pennsylvania, Illinois and Mississippi.

Harrah's management even proposed a blockbuster third option, a leveraged recapitalization plan that would borrow a whopping $6.3 billion and spread the proceeds to shareholders in a special dividend of $33 a share.

The committee told Apollo and Texas Pacific on Dec. 14 that the group had a deal if it bumped the price to $91 per share. The group came back saying $90 was its "best and final" price, and the two sides finally agreed after also agreeing on hefty breakup fees if the deal collapsed.

The Associated Press reported Dec. 18 that the final touches were being put on a deal between Harrah's and Apollo/Texas Pacific at $90 a share. That afternoon, Penn raised the cash portion of its bid by $2.13 a share, to a total $89.95, conditioned on insurance receivables it might receive on a separate matter.

After talks with UBS and Harrah's director R. Brad Martin, Penn made a last ditch effort a day later, agreeing to add another $200 million in cash, or $1.03 a share, if Harrah's agreed to cut future capital spending by the same amount, with an offer that potentially reached more than $90 a share.

But the Harrah's committee noted the deal had too many conditions that did not seem likely to come to pass and went ahead with the deal with Apollo/Texas Pacific, the document showed.

Meanwhile, Penn's chief executive seemed burned out by the whole process.

In a Thursday morning conference call, Carlino told analysts that while Penn is still looking to expand, the cost of buying casinos might have gotten too high.

"Clearly, we have stated publicly that we'd like to be in Atlantic City. We'd like to be in Las Vegas. We'd like to be in a couple of other major cities where we've poked around from time to time," he said. "It's not clear at all that there are properties in any of those markets, frankly, at prices we'd want to pay. And we may not."

"We have to look a lot more carefully and cautiously at what's out there," he said. "So, is it tougher today than it was previously? Absolutely."